“It does not matter how small the sins are provided that their cumulative effect is to edge the man away from the Light and out into the Nothing. Murder is no better than cards if cards can do the trick. Indeed the safest road to Hell is the gradual one— the gentle slope, soft underfoot, without sudden turnings, without milestones, without signposts.” C.S. Lewis, The Screwtape Letters

19 June 2014

Why the Big Rally in Precious Metals Today?

I am not taking any victory laps just yet, because we have seen these big one day gains fade in the past, and we do not yet know exactly what prompted this massive short covering, which is what triggered this breakout through 1300. It is certainly technical in nature, at least in part.

But I thought it was interesting to get an early cross section. I have posted excerpts below.

I follow the trends, and if this rally can extend itself, and take out some of the more intermediate term resistance and downtrends, then I think we will know much more about it. These big one day moves up on no news are just a corollary to the big moves down on heavily selling in quiet periods. They are not a sign of a healthy market providing solid price discovery.

If it does extend, and the trend changes, then there will be a number of factors, but perhaps one defining 'trigger event' that by itself could not do it, but given the confluence of events, was the snowfall that started an avalanche. But we do not have enough information to say that yet.

As you know I have an eye on the BRICs, and on Argentina. "...let me just say that it is looking like the first lightning flash in what could become the Perfect Storm."

I also have a very open mind for silver on this, which has been a 'stonewall' over the past week or so. Hardly anyone is talking about it except for a few professionals.

I no longer hold my 'modest position in SLW.' It was for a trade and was not large in relation to my portfolio. But the gain was nice, too good and quick to pass by.

One day at a time. Follow through is everything. Here is what people are saying so far. As Bill Murphy says, 'price movement makes market commentary.'

"Gold prices were on track for the biggest daily gain in nine months Thursday, driven by investors who were caught flat-footed by the Federal Reserve's outlook for continued low interest rates...

Prices rocketed past the psychologically important $1,300-an-ounce level, breathing new life into the market and luring momentum-chasing funds in as buyers, brokers said. Gold futures had crossed above their 50-day and 100-day moving averages in quick order, sending buy signals to investors who follow such technical indicators."

"Intriguingly, just as we warned, gold and silver have been on a significant tear since the Qingdao CCFD probe began (as synthetic hedges are unwound - which dominate pricing in PMs) while copper and iron ore and so on have all fallen (as the reality of no real demand leaks into these commodities)."

"Gold prices pushed above $1,300 on Thursday, propelled by continued tension in Iraq and signals from Federal Reserve Chairwoman Janet Yellen that short-term rates can be held steady for a while longer."

"Gold price on insane surge after massive trade. The gold price scaled $1,300 an ounce for the first time in more than a month, after comments by US Federal Reserve chair Janet Yellen yesterday and a huge buyer lit a fire under traders."

"Gold rose above $1,310 an ounce on Thursday, gaining almost 3 percent as a drop in the dollar and a lack of commitment by the U.S. Federal Reserve to raise interest rates sent metal investors rushing to buy back their bearish bets...

Gold's rise to a 1-1/2 month high was boosted by the U.S. dollar index's tumble a day after the Fed signaled it will stick with a near-zero interest rate policy to support the economy, disappointing traders who had bet on hints of policy tightening. Analysts said that market participants in droves aggressively bought back short positions that were placed earlier in the week on expectations that a stronger U.S. economy would dampen bullion demand."

"Gold surged the most in nine months and silver jumped to a 13-week high as the Federal Reserve said U.S. interest rates will remain low, driving the dollar down and boosting demand for the metals as alternative investments.

Gold topped $1,300 an ounce and silver rose the most in four months, leading a gauge of 24 commodities to the highest since August. The greenback fell to a four-week low against a basket of 10 major currencies. Yesterday, Fed Chair Janet Yellen said rates will probably remain low for a considerable time after debt purchases by the central bank end."

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Welcome to Jesse's Café Américain - These are personal observations about the economy and the markets. In providing information, I hope this allows you to make your own decisions in an informed manner, even if it is from learning by my mistakes, which are many. As a standing policy I never provide individual investment advice to anyone. I will only occasionally disclose my personal positions for purposes of illustration. Understand that my own circumstances could differ greatly from your own, and therefore what is suitable for me may not be suitable for you. My comments are intended to be reflection on general macro financial and economic events and trends.